When we sell cash-secured puts, we are undertaking the contractual obligation to buy shares at the strike price by the expiration date. The option seller (that’s us) sets those parameters. In return, we receive a cash premium. The implementation of exit strategy opportunities allows us to maximize the success of our trades. This article will detail how to enter and calculate put trades that are both rolled-up and closed prior to contract expiration using a hypothetical example with Company BCI. The information provided applies to all expirations, not only weeklys.
BCI weekly example
- 9/19/2022: BCI trading at $84.00
- 9/19/2022: STO the 9/23/2022 weekly $76.00 put at $0.37
- 9/21/2022: BCI trading at $90.00
- 9/21/2022: BTC the 9/23/2022 $76.00 put at $0.05
- 9/21/2022: STO the 9/23/2022 $84.00 put at $0.27 (roll-up)
- 9/23/2022 (expiration Friday: BCI trading at $83.00, and we want to avoid exercise
- 9/23/2022: BTC the 9/23/2022 $84.00 put at $0.37
Initial trade entries & Calculations + Roll-up entries & Calculations
BCI Put Calculations Using the TMC Spreadsheet
Note the following:
- The initial 5-day return is 0.49%, 35.71% annualized
- After rolling-up, the return moves from 0.49% to 0.78%
How to enter closing the trade to avoid exercise and calculate final trade results
BCI: Final Trade Entries & Calculations
Note the following:
- The rolled-up premium was changed from $0.27 to -$0.10
- This incorporates the $0.37 BTC debit
- The final trade result at the end of the 5-day period is 0.29%
- This annualizes to 21.17% (not shown in spreadsheet)
Trade notation in the Put Trade Journal aspect of the TMC spreadsheet
BCI Put Trade Notation in the TMC Trade Journal
Discussion
Entering and calculating our initial put (covered call as well) trades is only our first step in achieving and archiving accurate final trade results. We must also incorporate trade adjustments during the course of the contract cycle, if any. This article highlighted how to enter & calculate a put trade that was rolled-up and then closed prior to contract expiration.
Premium Member Benefits Video
This is a great time to join our premium member community with its stock screening and educational (over 200 videos) benefits. We offer more benefits than ever before. For information, click here.
For video explanation, click here.
Your generous testimonials
Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:
Hello from Bangkok, Alan:
It has been more than 10 years since last I had the privilege of a brief question/answer with you, and I have continued to follow your ‘second career’ ever since.
Congratulations on your growth in success and stature world-wide…it is so deserved, and I truly admire your enthusiasm, tenacity and commitment to providing straight-forward, useful and legitimate advice to your legions of followers.
I am now over 80 years old and have been and continue to be a beneficiary of your very honest, sound advice and encouragement.
I thank you sincerely.
As they say in Thai, ‘chok dii maak maak,” (good luck) for your continued success.
All the best,
William
Upcoming events
1.Wealth365 Investor Summit
Thursday October 13, 2022
Using Both Covered Call Writing and Put-Selling to Generate Monthly Cash Flow
The PCP Strategy (Put-Call-Put or “wheel” strategy)
Hosted by:
Dr. Alan Ellman, President of The Blue Collar Investor Corp.
Barry Bergman, BCI managing Director
Selling stock options is a proven way to lower our cost-basis and beat the market on a consistent basis. Two such low-risk strategies are covered call writing and selling cash-secured puts. This presentation will detail how to incorporate both strategies into one multi-tiered option-selling strategy where we either generate cash-flow or buy a stock at a discount. I refer to this as the Put-Call-Put (PCP) Strategy, also referred to as the wheel strategy.
The basics and pros and cons are discussed as well as a real-life example and introduction into the BCI PCP Calculator. This seminar is appropriate for those who look to generate modest, but consistent, returns which will enable us to beat the market on a steady basis while focusing in on capital preservation.
2.Money Show Orlando live event
October 30th – November 1st, 2022
OMNI ORLANDO RESORT AT CHAMPIONSGATE
Visit Alan, Barry and members of the BCI team at Booth # 415
Sunday, October 30, 2022, at 5:00 pm – 5:45 pm EDT
Covered Call Writing: Multiple Applications Based on Current Market Conditions
Monday, October 31, 2022, at 4:30 pm – 6:30 pm EDT
Selling Cash-Secured Puts: Detailed Start-to-Finish Six-Part Program*
Masters Class
Comprehensive Course on Selling Cash-Secured Puts
Detailed start-to-finish 6-part program
This presentation will provide all the information, with real-life examples, necessary to master the strategy of selling cash-secured puts. The program is divided into 6 sections:
- Section I:
- Option basics
- Section II
- Traditional put-selling
- Section III
- PCP (wheel) strategy
- Section IV
- Buy a stock at a discount instead of a limit order
- Section V
- Ultra-low-risk put/Delta strategy
- Section VI
- Ultra-low-risk put/Implied volatility strategy
This presentation was developed to benefit both beginner and experienced option traders and will provide all the information needed to initiate the strategy and elevate returns to the highest possible levels.
45-minute presentation
Covered Call Writing: Multiple Applications Based on Current Market Conditions
Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)
Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:
- Normal to bull markets
- Bear and volatile markets
- Low interest-rate environments
A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.
3. Money Show’s Post-Election Strategies Virtual Expo
November 10th -11th, 2022
Information & registration link to follow
***********************************************************************************************************************
Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.
****************************************************************************************************************
Premium Members,
This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 09/30/22.
Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:
http://www.youtube.com/user/BlueCollarInvestor
Reminder: Premium members are grandfathered into your current rate and will never see a rate increase as long as membership remains active.
Best,
Barry and The Blue Collar Investor Team
[email protected]
Alan,
I’ve been using your 10 delta weekly put strategy with very good success even in the current market conditions. Is there any disadvantage to rolling a put option let’s say late Friday rather than entering a new trade on Monday? Thanks a lot.
Dan
Dan,
The main disadvantage is that we are incurring possible weekend risk.
The time-value for selling Friday rather than Monday will be about the same (all other factors remaining the same) because market makers deduct time-value decay of the premiums on the Thursday or Friday prior to the weekend.
Alan
Alan,
I plan to hold several of my stocks through the upcoming earnings reports. Mainly energy companies. My question is when is the best time to sell covered calls after the report comes out? Same day? Next? Thanks for your help.
Susan
Susan,
There is frequently a rise in the price volatility of a security leading up to and shortly after an earnings announcement and its ensuing earnings conference call.
We wait for that volatility to subside and then write the call(s). This usually means later in the trading day of the report or the next but rarely beyond that.
Alan
Premium members:
This week’s 4-page report of top-performing ETFs and analysis of the top-performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly performance has also been incorporated into the report although not part of the screening process. Weekly option availability and implied volatility stats are also incorporated.
The mid-week market tone is located on page 1 of the report.
New members check out our ongoing and never-ending training videos (“Ask Alan” and Blue Hour webinars). We add at least one new video each month. Only premium members have access to the entire library of these training tools.
Reminder: Premium members are grandfathered into your current rate and will never see a rate increase as long as membership remains active.
For your convenience, here is the link to login to the premium site:
https://www.thebluecollarinvestor.com/member/login.php
NOT A PREMIUM MEMBER? Check out this link:
https://youtu.be/EXMO-KwZuJs
Alan and the BCI team
Alan,
Watching your video entitled Setting up a Technical Chart for Covered Call Writing and have a question.
Once signed up for the membership, do the weekly sunday updates include suggested entry points for the stocks or etf’s using this methodology? Or its up to me with the learning from your book?
Also, is the option expiration week always the same week each month (10-21-22 and 11-18-22)?
Thanks,
Jon
Jon,
Our weekly stock screen lists elite-performing securities from fundamental, technical and common-sense perspectives. The best securities, options and timing will vary from investor-to-investor. What is most appropriate for one may not be for another.
All the information needed to become independent in all 3-required skills (stock selection, option selection and position management) is in our educational material.
Monthly options expire on the 3rd Friday of the calendar month. If expiration Friday falls on a market-recognized holiday, options will expire on the Thursday prior to the 3rd Friday. Many of our securities also have weekly and other expirations as well.
Here is a link to a video detailing premium membership:
https://youtu.be/EXMO-KwZuJs
Alan